<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-19985
WESTCO BANCORP, INC.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3823760
-------- ----------
(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number
2121 South Mannheim Road, Westchester, Illinois 60154
- ------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (708) 865-1100
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
As of July 24, 1998, the Registrant had 2,486,263 shares of Common stock
and outstanding.
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WESTCO BANCORP, INC.
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition
June 30, 1998 (Unaudited) and December 31, 1997 1
Consolidated Statements of Income, Three and Six Months
Ended June 30, 1998 and 1997 (Unaudited) 2
Consolidated Statement of Changes in Stockholders' Equity,
Six Months Ended June 30, 1998 (Unaudited) 3
Consolidated Statements of Cash Flows, Six Months Ended
June 30, 1998 and 1997 (Unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II. OTHER INFORMATION 12
EXHIBIT 11.0 - Computation of Earnings per Share
EXHIBIT 27.0 - Financial Data Table
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WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
1998 1997
------------- ------------
(Unaudited)
Assets
- ------
Cash and amounts due from
depository institutions $ 3,190,286 3,797,551
Interest-bearing deposits 20,928,739 10,158,974
------------- ------------
Total cash and cash equivalents 24,119,025 13,956,525
Investment securities (market value of
$44,056,875 at June 30, 1998 and
$53,973,913 at December 31, 1997) 44,068,908 53,968,243
Investment securities held for trade 2,058,148 1,462,220
Loans receivable, net 243,462,827 240,097,597
Real estate owned - -
Stock in Federal Home Loan Bank of Chicago 2,080,500 1,997,000
Office properties and equipment, net 2,083,771 2,091,639
Accrued interest receivable 1,341,684 1,476,004
Prepaid expense and other assets 1,080,314 894,505
------------- ------------
Total assets 320,295,177 315,943,733
============= ============
Liabilities and Stockholders' Equity
- ----------- --- ------------- ------
Deposits 260,433,989 259,610,699
Advance payments by borrowers for taxes
and insurance 3,374,527 3,183,539
Other liabilities 6,315,742 4,562,544
------------- ------------
Total liabilities 270,124,258 267,356,782
------------- ------------
Stockholders' Equity:
Common stock ($0.01 par value: 5,000,000 shares 35,251 35,216
authorized; 3,525,070 shares issued and
2,486,263 shares outstanding at June 30, 1998;
3,521,570 shares issued and 2,464,353 shares
outstanding at December 31, 1997)
Additional paid-in capital 23,086,613 23,020,242
Retained earnings 42,776,498 41,583,949
Treasury stock (1,038,807 shares at June 30, 1998
1,057,217 shares at December 31, 1997) (15,478,586) (15,679,170)
Common stock acquired by ESOP (248,857) (373,286)
------------- ------------
Total stockholders' equity 50,170,919 48,586,951
------------- ------------
Total liabilities and stockholders' equity $ 320,295,177 315,943,733
============= ============
See notes to consolidated financial statements.
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WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
----------- --------- ---------- ----------
Interest income:
Interest on loans $ 5,094,525 4,881,062 10,056,446 9,563,479
Interest on investments 722,026 861,870 1,504,325 1,812,707
Interest on interest-bearing
deposits 197,706 127,042 327,430 234,377
Dividends on securities
held for trade 8,721 1,528 14,714 4,258
Dividends on FHLB stock 34,364 33,300 66,986 64,433
----------- --------- ---------- ----------
Total interest income 6,057,342 5,904,802 11,969,901 11,679,254
----------- --------- ---------- ----------
Interest expense:
Interest on deposits 3,243,013 3,113,511 6,440,549 6,182,919
----------- --------- ---------- ----------
Total interest expense 3,243,013 3,113,511 6,440,549 6,182,919
----------- --------- ---------- ----------
Net interest income 2,814,329 2,791,291 5,529,352 5,496,335
----------- --------- ---------- ----------
Non-interest income:
Loan fees and service charges 67,061 76,367 138,770 136,787
Commission income 76,739 67,261 129,769 136,630
Unrealized gain (loss) on
trading account securities (89,650) 20,372 (33,228) 22,786
(Loss) Gain on sale of trading
account securities (9,649) 49,731 76,251 72,011
Other income 62,374 61,161 126,911 118,698
----------- --------- ---------- ----------
Total non-interest income 106,875 274,892 438,473 486,912
----------- --------- ---------- ----------
Non-interest expense:
Staffing costs 786,417 820,556 1,554,648 1,630,994
Advertising 31,857 43,725 64,337 76,200
Occupancy & equipment expense 115,616 125,123 232,483 251,082
Data processing 52,313 51,082 113,754 109,238
Federal deposit insurance
premiums 40,500 41,400 81,000 82,800
Other 253,316 167,286 443,443 327,184
----------- --------- ---------- ----------
Total non-interest expense 1,280,019 1,249,172 2,489,665 2,477,498
----------- --------- ---------- ----------
Income before taxes 1,641,185 1,817,011 3,478,160 3,505,749
Provision (benefit) for
income taxes 583,200 664,000 1,243,469 1,274,100
----------- --------- ---------- ----------
Net Income $ 1,057,985 1,153,011 2,234,691 2,231,649
=========== ========= ========== ==========
Earnings per share-primary $ .43 .47 .91 .89
Earnings per share-fully diluted $ .40 .43 .84 .82
Dividends declared per common
share $ .17 .15 .34 .30
See notes to consolidated financial statements.
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WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Additional Stock
Common Paid-In Retained Treasury Acquired
Stock Capital Earnings Stock by ESOP Total
------- ---------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1997 $35,216 23,020,242 41,583,949 (15,679,170) (373,286) 48,586,951
Net income 2,234,691 2,234,691
Adjustments to determine
comprehensive income 0 0
---------- ----------
Comprehensive income 2,234,691 2,234,691
Purchase of Treasury stock
(6,000 shares) (163,125) (163,125)
Exercise of stock options 35 23,310 (200,894) 363,709 186,160
Tax benefit related to
employee stock plan 43,061 43,061
Contribution to fund ESOP 124,429 124,429
Dividend declared on
common stock (841,248) (841,248)
------- ---------- ---------- ------------ --------- ----------
Balance at June 30, 1998 $35,251 23,086,613 42,776,498 (15,478,586) (248,857) 50,170,919
======= ========== ========== ============ ========= ==========
</TABLE>
See notes to consolidated financial statements.
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WESTCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
1998 1997
----------- ----------
Cash flows from operating activities:
Net income $ 2,234,691 2,231,649
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 88,635 98,138
Amortization of premiums and discounts on
investment securities - net (45,020) (71,032)
Amortization of cost of stock benefit plans 124,429 249,744
(Gain) loss on sale of trading account securities (76,251) (126,452)
Unrealized (gain)loss on trading account securities 33,228 (22,786)
Proceeds from sales of trading account securities (2,279,352) (2,247,574)
Purchase of trading account securities 1,726,447 2,236,715
Decrease in deferred income on loans (226,637) (153,506)
(Decrease)increase in current and deferred
federal income tax (152,726) 579,174
(Increase)decrease in interest receivable 134,320 139,158
Increase(decrease) in interest payable 5,567 (20,287)
Change in prepaid and accrued items, net 1,753,884 (636,042)
----------- ----------
Net cash provided by operating activities 3,321,215 2,256,899
----------- ----------
Cash flows from investing activities:
Proceeds from maturities of investment securities 24,800,000 27,643,003
Purchase of investment securities (14,855,645) (15,277,746)
Purchase of Federal Home Loan Bank stock (83,500) (121,000)
Disbursements for loans (37,705,109) (31,784,088)
Loan repayments 34,566,516 22,069,529
Property and equipment expenditures (80,767) (110,354)
----------- ----------
Net cash provided for investing activities 6,641,495 2,419,344
----------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 186,160 90,440
Deposit account receipts 139,607,300 134,999,279
Deposit account withdrawals (144,642,236) (139,636,170)
Interest credited to deposit accounts 5,858,226 5,612,102
Increase in advance payment
by borrowers for taxes and insurance 190,988 254,358
Payment of dividends (837,523) (768,175)
Purchase of treasury stock (163,125) (2,350,537)
----------- ----------
Net cash provided by(for) financing activities 199,790 (1,798,703)
----------- ----------
Net change in cash and cash equivalents 10,162,500 2,877,540
Cash and cash equivalents at beginning of period 13,956,525 11,389,326
----------- ----------
Cash and cash equivalents at end of period $ 24,119,025 14,266,866
=========== ==========
Cash paid during the period for:
Interest $ 6,442,584 6,203,206
Income taxes 1,396,195 962,600
Non-cash investing activities:
Transfer of loans to real estate owned $ - 681,972
See notes to consolidated financial statements.
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WESTCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
accordance with generally accepted accounting principles for interim financial
information and instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
However, in the opinion of management, all adjustments (which are normal and
recurring in nature) necessary for a fair presentation have been included. The
results of operations for the three months and six months ended June 30, 1998
are not necessarily indicative of the results which may be expected for the
entire year.
Note B - Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Westco Bancorp, Inc. (the "Company"), its wholly-owned subsidiaries
First Federal Savings and Loan Association of Westchester (the "Association")
and Westco, Inc., the Association's wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Note C - Stock Conversion and Stock Split
On February 13, 1992 the Board of Directors of First Federal Savings and Loan
Association of Westchester approved a plan to convert from a federally chartered
mutual savings association to a federally chartered stock savings association.
The stock conversion plan included, as part of the conversion, the concurrent
formation of a Holding Company. The stock offering of the Association's parent,
Westco Bancorp, Inc. (the "Company") was closed on June 25, 1992 with the sale
of 2,300,000 shares at $10.00 per share. The Company purchased all the shares of
stock of the Association for $10,962,363 upon completion of its stock offering.
May 17, 1997 a three for two stock split occurred with fractional shares being
paid in cash.
Note D - Stock Repurchase
Since the June, 1992 conversion, the Company's Board of Directors has approved
seven separate stock repurchase programs. The current stock repurchase program
permits the repurchase of up to 200,000 shares; and, as of July 24, 1998, 54,040
shares remain to be repurchased in the open market.
Note E - Earnings Per Share
Earnings per share are determined by dividing net income for the period by the
weighted average number of both basic and diluted shares of common stock and
common stock equivalents outstanding. Stock options are regarded as common stock
equivalents and are considered in diluted earnings per share calculations.
Common stock equivalents are computed using the treasury stock method. Earnings
per share data for 1997 have been restated for comparative purposes to reflect
the implementation of Statement of Financial Accounting Standards No. 128.
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<PAGE>
Management's Discussions and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources:
- --------- --- ------- ---------
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and proceeds from the maturity of
investment securities. While maturities and scheduled amortization of loans and
investment securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition from various financial markets. The primary business
activity of the Company, that of making conventional mortgage loans on
residential housing, is likewise affected by economic conditions.
The Association is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be varied at the
direction of the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
ratio is currently 4.0%. The Association has historically maintained a high
level of liquid assets. At June 30, 1998, the Association's liquidity ratio was
34.4%.
The Company maintains a significant part of the assets in overnight
deposits and a portfolio of U.S. Treasury and Agency securities with "laddered"
maturities. This strategy results in a relatively short weighted average
maturity of these assets. At June 30, 1998, these investments totalled $65.0
million, 20.3% of assets, with a weighted average life of approximately 5
months. At December 31, 1997, these investments totalled $64.1 million, or 20.3%
of assets, with a weighted average life of approximately 8 months.
The Company's most liquid assets are cash and cash equivalents. The levels
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period. At June 30, 1998, cash and cash
equivalents totalled $24.1 million.
The primary investing activity of the Company is the origination of
mortgage loans. During the six months ended June 30, 1998 and 1997, the Company
disbursed loans in the amounts of $37.7 million and $31.8 million, respectively.
Other investing activities include the purchase of investment securities, which
totalled $14.9 million for the six months ended June 30, 1998 and $15.3 million
for the six months ended June 30, 1997. These activities in 1998 were funded
primarily by principal repayments on loans totalling $34.6 million and
maturities of investment securities totalling $24.8 million. The six month
activity for 1997 was funded by principal repayments on loans and maturities of
investment securities in the amounts of $22.1 million and $27.6 million
respectively.
At June 30, 1998, the Company had outstanding loan commitments of $11.2
million. At that same date, there were no commitments to purchase loans or
investment securities. The Company anticipates that it will have sufficient
funds available to meet its current loan commitments. Certificates of deposit
which are scheduled to mature in one year or less from June 30, 1998 totalled
$103.0 million. Management believes that a significant portion of such deposits
will remain with the Company.
The regulatory standards of the Office of Thrift Supervision impose the
following capital requirements: a risk based capital standard expressed as a
percent of risk based assets, a leverage ratio of core capital to total adjusted
assets, and a tangible capital ratio expressed as a percent of total adjusted
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<PAGE>
assets. As of June 30, 1998, the Association exceeded all regulatory capital
standards.
Capital requirements, ratios and balances are as follows:
Actual Required Actual Excess
Capital Capital Capital Capital Capital
Required Ratio Amount Amount Amount
At December 31, 1997: -------- ------- -------- ------- -------
Tangible 1.5% 13.1% $4,635 $41,502 $36,867
Core 3.0 13.1 9,270 41,502 32,232
Risk Based:
Tier I (core) 4.0 30.0 5,761 41,502 35,741
Total 8.0 30.5 11,523 42,230 30,707
At June 30, 1998:
Tangible 1.5% 12.6% $4,659 $39,171 $34,512
Core 3.0 12.6 9,319 39,171 29,852
Risk Based:
Tier I (core) 4.0 26.7 5,863 39,171 33,308
Total 8.0 27.2 11,725 39,797 28,072
CHANGE IN FINANCIAL CONDITION OVER THE SIX MONTHS ENDED JUNE 30, 1998:
- ------ -- --------- --------- ---- --- --- ------ ----- ---- --- ----
Total assets increased $4.4 million, or 1.4%, during the period to $320.3
million at June 30, 1998 from $315.9 million at December 31, 1997.
Loans receivable increased $3.4 million, or 1.4%, to $243.5 million from
$240.1 million at December 31, 1997. The increase is primarily a function of
loan disbursements of $37.7 million offset by amortization and prepayments of
$34.6 million. The growth in loans receivable reflects the continued demand for
most types of loans to either purchase or refinance loans on one- to four-family
residences due to the low interest rate environment. Since the beginning of the
year, the Company has closed $1.9 million in residential construction loans,
$1.1 million in permanent loans on residential property of five or more dwelling
units and $2.6 million in permanent loans on non-residential properties. During
the same period in 1997, the Company closed $2.0 million in construction loans
and $4.5 million in loans on properties having five or more dwelling units, and
$2.5 million on non-residential property.
Investment securities decreased $9.9 million, or 18.3%, to $44.1 million at
June 30, 1998 as additional funds from maturing investment securities were
invested in overnight investments due to the flat yield curve. Cash and cash
equivalents totalled $24.1 million at June 30, 1998 compared to $14.0 million at
December 31, 1997 reflecting the temporary redeployment.
Savings deposits increased $823,000, or 0.3%, to $260.4 million at June 30,
1998 from $259.6 million at December 31, 1997. The Company experienced a net
deposit outflow of $5.0 million (before interest credited) for the six month
period ended June 30, 1998.
The balance of non-performing loans totalled $1.42 million at June 30,
1998, increasing $631,000, or 18.8%, from $786,000 at December 31, 1997. The
increase is due primarily to the recurring delinquency of a group of
approximately ten loans which fall behind in payments until foreclosure is
threatened or begun at which time the loans are brought current. This
fluctuation has been present in the Company's delinquencies over the past couple
of years. The ratio of non-performing loans to total loans was 0.58% at June 30,
1998 compared to 0.33% at December 31, 1997.
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Non-performing loans represented all of the Company's non-performing assets
at both June 30, 1998 and December 31, 1997. The ratio of non-performing assets
to total assets was 0.44% and 0.25% at June 30, 1998 and December 31, 1997
respectively. The Company's allowance for loan losses totalled $902,800, or
63.7% of non-performing loans, at June 30, 1998. Included in this total is a
$277,000 specific loan loss allowance on a 36 unit apartment building having an
outstanding balance of $303,000.
During 1992, the Association's ESOP borrowed $1,840,000 from an unrelated
third party to fund the Association's ESOP plan which was established in
connection with the conversion. During 1993, Westco Bancorp, Inc. refinanced
this loan on essentially the same terms as the original lender. The June 30,
1998 balance of $249,000 is eliminated in the consolidation of the Company's
financial statements. At December 31, 1997, the outstanding balance totalled
$373,000.
Retained earnings increased $1.2 million, or 2.9%, to $42.8 million as a
result of earnings for the six month period ended June 30, 1998 offset by the
declaration of dividend payments to stockholders during the same period.
Stockholders equity totalled $50.2 million, or 15.7% of total assets at June 30,
1998, and the book value per common share outstanding was $20.18.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
- ---------- -- --------- ------- --- --- ----- ------ ----- ---- --- ---- ---
JUNE 30, 1997:
- ---- --- ----
Net income for the quarter ended June 30, 1998 decreased $95,000, 8.2%, to
$1.06 million from $1.15 million for the quarter ended June 30, 1997. The
decrease in quarterly earnings resulted from a $168,000 decrease in non-interest
income, including a $169,000 decrease in realized and unrealized gains on
securities held for trading, and a $31,000 increase in non-interest expense.
These changes were partially offset by a $23,000 increase in net interest income
and an $81,000 decrease in income taxes.
In the quarter ended June 30, 1998 net interest income increased 0.8% to
$2.81 million from $2.79 million for the 1997 quarter. Interest income increased
$152,500 while interest expense increased $130,000. The Company's interest
rate spread averaged 2.80% during the 1998 second quarter, compared to 2.95%
during the 1997 second quarter. The Company's net interest margin averaged 3.62%
for the quarter ended June 30, 1998 compared to 3.71% for the quarter ended June
30, 1997. During the first quarter of 1998, the Company's net interest rate
spread averaged 2.75% and its net interest margin averaged 3.55%.
During the three months ended June 30, 1998 and June 30, 1997 no additional
provision for loan losses was made based upon (1) the absence of any specific
asset quality problems, (2) the current level of general loan loss reserves, and
(3) management's assessment of the inherent risk in the Company's mortgage
portfolio and possible prospective economic and regulatory conditions.
Non-interest income for the second quarter of 1998 decreased $168,000 over
the same quarter in 1997 due primarily to a $169,000 decrease in realized and
unrealized gains on investments held for trading. This decrease was partially
offset by a $1,000 increase in other miscellaneous income.
Non-interest expense increased by $31,000 to $1.28 million for the three
months ended June 30, 1998 from $1.25 million for the three months ended June
30, 1997. This increase resulted primarily from an $81,000 increase in legal and
consulting fees, a $4,000 increase in franchise taxes, and a $1,000 increase in
data processing costs. These increases were partially offset by a $34,000 de-
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<PAGE>
crease in staffing costs, a $12,000 decrease in advertising expenses, a $10,000
decrease in office occupancy expense and a $1,000 decrease in FDIC premiums.
Income tax for the second quarter of 1998 decreased $81,000 as a result of
all of the above.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
- ---------- -- --------- ------- --- --- --- ------ ----- ---- --- ---- ---
JUNE 30, 1997:
- ---- --- ----
Net income for the six months ended June 30, 1998 totalled $2.23 million, a
$3,000 increase compared to the six months ended June 30, 1997.
During the six months ended June 30, 1998, interest income increased
$291,000 from the year earlier while interest expense increased $258,000. The
Company's net interest margin averaged 3.58% for the six months ended June 30,
1998 and 3.67% for the six months ended June 30, 1997. The Company's interest
rate spread averaged 2.77% during the six months ended June 30, 1998, compared
to 2.90% during the same period in 1997.
During the six months ended June 30, 1998 and 1997 no additional provision
for loan losses was made based upon the absence of any specific asset quality
problems, the current level of general loan loss reserves and management's
assessment of the inherent risk in the Company's mortgage portfolio and possible
prospective economic and regulatory conditions.
Non-interest income for the six months of 1998 decreased $48,000 from the
same period in 1997, due to a decrease of $52,000 in the net results of realized
and unrealized gains and losses on investments held for trading, and an decrease
in commissions on sales of insurance and investment products $6,000. These
decreases were offset by increases of $2,000 in loan fees and service charges
and $8,000 in other income.
Non-interest expense increased $12,000 for the six months ended June 30,
1998 from the level for the six months ended June 30, 1997 primarily as a result
of a $102,000 increase in legal and professional fees, a $4,000 increase in data
processing costs, an $8,000 increase in franchise taxes and a $5,000 increase in
miscellaneous operating expenses. These increases were offset by decreases in
staffing costs, occupancy and equipment costs and advertising expense in the
amounts of $76,000, $19,000 and $12,000 respectively.
The provision for income taxes decreased $31,000. The effective tax rate
for the six months ended June 30, 1998 and 1997 was 35.8% and 36.3%
respectively.
IMPACT OF NEW ACCOUNTING STANDARDS
- ------ -- --- ---------- ---------
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS 132 alters current disclosure requirements
regarding pensions and other postretirement benefits in the financial statements
of employers who sponsor such benefit plans. The revised disclosure requirements
are designed to provide additional information to assist readers in evaluating
future costs related to such plans. Additionally, the revised disclosures are
designed to provide changes in the components of pension and benefit costs in
addition to the year end components of those factors in the resulting asset or
liability related to such plans. The statement is effective for fiscal years
begining after December 15, 1997 with earlier application available. Management
does not expect SFAS 132 to have a material impact on the Company.
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The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.
THRIFT RECHARTERING LEGISLATION
- ------ ------------ -----------
The Deposit Insurance Funds Act provides that the BIF and SAIF will merge
on January 1, 1999 if there are no more savings associations as of that date.
Congress is currently considering legislation which addresses this issue as well
as others which deal with the modernization of the banking industry. Management
cannot predict whether such legislation will be enacted or the extent to which
any legislation would affect the Company's operations.
YEAR 2000 ANALYSIS
- ---- ---- --------
The Company, including its subsidiaries, does not own or use proprietary
software. The Association has a contract with NCR Corporation for data
processing services on savings and loan accounts, and NCR has assured the
Company that all systems will be Year 2000 Compliant by mid-1999. Vendors
supplying software for other internal uses have made the same assurance. OTS has
recently performed an interim exam regarding this issue during the second
quarter of 1998.
Management does not expect the total cost for its internal systems to
become Year 2000 compliant to be significant.
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<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instrument assets and liabilities are subject to
varying degrees of actual or theoretical market risk. The only significant
exposure of these instruments results from the interest rate risk embedded in
them based upon their contractual terms.
As of March 31, 1998, the latest date available, an OTS analysis of the
Association's estimated interest rate risk, as measured by changes in the Net
Portfolio Value of the Association's financial assets and liabilities for
instantaneous and sustained parallel shifts in interest rates, indicated that
the Net Portfolio Value would decrease 13% and 30% for 200 and 400 basis point
increases in interest rates respectively, compared to 14% and 31% respectively
for the previous quarter, and increase 5% and 11% for 200 and 400 basis point
decreases interest rates respectively, compared to 6% and 12% respectively for
the previous quarter.
The Board of Directors has established parameters for monitoring the
Association's interest rate risk.
-11-
<PAGE>
PART II - OTHER INFORMATION
WESTCO BANCORP, INC.
Item 1. LEGAL PROCEEDINGS
----- -----------
From time to time, the Association is a party to legal proceedings in the
ordinary course of business, wherein it enforces its security interest. The
Company and the Association are not engaged in any legal proceedings of a
material nature at the present time.
Item 2. CHANGES IN SECURITIES - Not applicable
------- -- ----------
Item 3. DEFAULTS UPON SENIOR SECURITIES - Not applicable
-------- ---- ------ ----------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not applicable
---------- -- ------- -- - ---- -- -------- -------
Item 5. OTHER INFORMATION
----- -----------
STOCK OPTIONS
In accordance with the provisions of the Westco Bancorp, Inc. 1992
Incentive Stock Option Plan, which was approved by a vote of the shareholders on
June 29, 1992, Executive Vice President Gregg P. Goossens and Vice
President/Secretary Mary S. Suffi exercised options on 16,000 and 500 shares of
Common Stock granted to each respectively. The dates of exercise were June 12
and June 29, respectively. In April and May, two non-executive officers of the
Association exercised a combined total of 3,510 options.
In accordance with the provisions of the Westco Bancorp, Inc. 1992 Stock
Option Plan for Outside Directors, which was approved by a vote of the
shareholders on June 29, 1992, Director Edward A. Matuga exercised options on
4,000 shares of Common Stock granted to him. The date of exercise was June 16,
1998.
STOCK REPURCHASE PROGRAM
The Company began its current common stock repurchase plan in February,
1998. As of July 23, 1998, 54,040 shares remain to be repurchased.
COMMON STOCK SHARES OUTSTANDING
As a result of the exercise of options and shares repurchased in accordance
with the repurchase plan previously described, the number of common shares
outstanding on July 24, 1998 totalled 2,486,263 shares.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
-------- --- ------- -- ---- ---
(a) The following exhibits are filed as part of this report:
3.1 Certificate of Incorporation of Westco Bancorp, Inc.*
3.2 Bylaws of Westco Bancorp, Inc.*
4.0 Stock Certificate of Westco Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith)
27.0 Financial Data Schedule (filed herewith)
* Incorporated herein by reference in this document from the Exhibits
to Form S-1, Registration Statement, filed on March 23, 1992 and
any amendments thereto, Registration No. 33-46441.
(b) No reports on Form 8-K were filed this quarter.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESTCO BANCORP, INC.
--------------------
Registrant
DATE: July 24, 1998 BY: (s) /s/ David C. Burba
--- ----- -- -----
David C. Burba
President and
Chief Executive Officer
DATE: July 24, 1998 BY: (s) /s/ Richard A. Brechlin
--- ------- -- --------
Richard A. Brechlin
Executive Vice President and
Chief Financial Officer
DATE: July 24, 1998 BY: (s) /s/ Kenneth J. Kaczmarek
--- ------- -- ---------
Kenneth J. Kaczmarek
Vice President and
Chief Accounting Officer
<PAGE>
EXHIBIT 11.0 - Computation of Earnings Per Share
Three Months Six Months
Ended Ended
6/30/98 6/30/98
------------ ----------
Net income $ 1,057,985 $2,234,691
============ ==========
Common stock (Weighted Average) 2,468,948 2,465,620
============ ==========
Basic earnings per share $ 0.43 $ 0.91
============ ==========
Common stock 2,468,948 2,465,620
Common stock equivalents using
the treasury stock method 188,812 187,561
------------ ----------
Total common stock and common for
stock equivalent station 2,657,760 2,653,181
============ ==========
Diluted earnings per share $ 0.40 $ 0.84
============ ==========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,190,286
<INT-BEARING-DEPOSITS> 20,928,739
<FED-FUNDS-SOLD> 4,438,487
<TRADING-ASSETS> 2,058,148
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 44,068,908
<INVESTMENTS-MARKET> 44,056,875
<LOANS> 243,462,827
<ALLOWANCE> 902,800
<TOTAL-ASSETS> 320,295,177
<DEPOSITS> 260,433,989
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,690,269
<LONG-TERM> 0
0
0
<COMMON> 35,251
<OTHER-SE> 50,135,668
<TOTAL-LIABILITIES-AND-EQUITY> 320,295,177
<INTEREST-LOAN> 10,056,446
<INTEREST-INVEST> 1,846,469
<INTEREST-OTHER> 66,986
<INTEREST-TOTAL> 11,969,901
<INTEREST-DEPOSIT> 6,440,549
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 5,529,352
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 43,023
<EXPENSE-OTHER> 2,489,665
<INCOME-PRETAX> 3,478,160
<INCOME-PRE-EXTRAORDINARY> 3,478,160
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,234,691
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 3.58
<LOANS-NON> 1,417,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 902,800
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 902,800
<ALLOWANCE-DOMESTIC> 277,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 625,800
</TABLE>
